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February 9, 2014

Top Portfolio Products: iShares Introduces Currency-Hedged ETFs

New products introduced over the last week include currency-hedged ETFs from iShares; a floating rate Treasury ETF from WisdomTree; an MLP high-income ETF from Direxion; a low-volatility mutual fund from BPV Capital Management; a low-volatility, high-dividend index from S&P Dow Jones Indices; and an interactive calculator from Fidelity Financial Advisor Solutions.

In addition, CAIS, Citi and Atlantic Fund Services announced a collaboration to provide a turnkey solution for hedge fund managers to launch alternative mutual funds.

Here are the latest developments of interest to advisors:

1) iShares Launches Currency-Hedged ETFs

iShares, the ETF business of BlackRock, has launched three currency-hedged ETFs designed to reduce the impact of currency fluctuations on returns when investing in foreign countries. They are the iShares Currency Hedged MSCI EAFE ETF (HEFA), iShares Currency Hedged MSCI Germany ETF (HEWG) and iShares Currency Hedged MSCI Japan ETF (HEWJ).

The new funds track indexes by MSCI that employ a market-cap-weighted methodology and provide comprehensive local country exposure with diversified sector weightings. They also invest in their unhedged parent ETFs—iShares MSCI EAFE (EFA), Germany (EWG) and Japan (EWJ)— and implementing foreign currency forward contracts, the hedged ETFs provide a way to mitigate unwanted currency risk.

2) WisdomTree Launches Floating Rate Treasury ETF

WisdomTree has announced the launch of the WisdomTree Bloomberg Floating Rate Treasury Fund (USFR). For the first time, the U.S. Treasury has begun to issue floating-rate notes (FRNs) to tap the demand of investors to reduce interest rate risk.

USFR seeks to provide exposure to those floating rate notes issued by the U.S. Treasury and has a net expense ratio of 0.15%. Its gross expense ratio of 0.20% and net expense ratio of 0.15% reflect a contractual waiver of 0.05% through USFR's first year of operations.

3) Direxion Launches MLP High-Income ETF

Direxion has announced the Direxion Zacks MLP High Income Shares ETF (ZMLP), which seeks to generate investment results based on the Zacks MLP Index’s price and yield performance.

Zacks Index Services compiles and manages the index, which is composed of roughly 25 master limited partnerships (MLPs) listed on North American stock exchanges. The index’s holdings are selected using a quantitative, rules-based methodology developed by Zacks to eliminate MLPs with insufficient share prices, market capitalizations and liquidity. All companies in the index are equally weighted so that each holding constitutes 4% of the ETF’s portfolio, which is rebalanced on a quarterly basis.

4) BPV Capital Management Announces Low-Volatility Mutual Fund

BPV Capital Management has announced the launch of the BPV Low Volatility Fund (BPVLX), a low-fee hedged equity strategy that seeks to provide institutional investors and advisors with bondlike returns and reduced volatility as compared to the S&P 500.

BPVLX will hold a broad-based equity portfolio. Using a variety of option strategies, it seeks to establish downside protection while simultaneously creating income. Collaring, the process of purchasing a put option while selling a covered call option, is one important option strategy used to help establish a more highly focused risk/return profile.

5) S&P Dow Jones Indices Launches Low Volatility High Dividend Index

S&P Dow Jones Indices has announced the launch of the S&P Europe 350 Low Volatility High Dividend Index. The index, which is designed to serve as a benchmark, measures the performance of 50 high-yielding companies within the S&P Europe 350 that meet diversification, volatility, and tradability requirements.

The S&P Europe 350 is an equity index drawn from 17 major European markets, covering approximately 70% of the region's market capitalization. It is designed to provide broad market exposure in Europe through an index that is efficient to replicate.

6) Fidelity Announces Interactive Calculator

Fidelity Financial Advisor Solutions, a unit of Fidelity Investments, has announced the launch of the Fidelity Yield Investigator, an interactive calculator designed to help advisors as they face increasingly complex portfolio construction decisions amid a fluid fixed-income environment.

The calculator provides an interactive format through which an advisor can research different bond sectors, using corresponding market indices, by inputting hypothetical data such as yield, spread, time horizons and targeted risk and return levels to test how a sector, or hypothetical bond portfolio, may perform in different market conditions. The Fidelity Yield Investigator makes portfolio construction analytics available at no cost in an interactive format, enabling financial advisors to test portfolios in different market environments. Among the scenarios advisors can explore are how time horizons may impact fixed-income asset classes; the relationship between return and duration; and how portfolio composition can impact a fixed-income portfolio.

7) CAIS, Citi and Atlantic Fund Services Collaborate

CAIS, Citi and Atlantic Fund Services have collaborated to create ALTX Trust, which is designed to provide a turnkey solution for hedge fund managers that seek to launch ’40 Act alternative mutual funds.

CAIS will list newly launched ALTX mutual funds on its platform and provide wholesale distribution services. As with all funds listed on CAIS, Mercer will conduct strategy due diligence and ongoing monitoring, and provide each new fund with a rating. Atlantic Fund Services will provide fund administration, governance and compliance support, while Citi’s investor services division will be the exclusive global custodian for the trust, and will serve as the preferred prime broker to newly launched alternative mutual funds.